Exercise 1

A company has the following balance sheet for 31/12/2021

Assets Equity and Liabilities
Land 100 Stock capital 80
Machinery 200 Reserves 120
Equipment 120 Profits for the period 20
Machinery depreciation -40 Non-current liabilities 140
Equipment depreciation -20 Current liabilities 10
Raw materials inventory 12 Payables 40
Finished goods inventory 8
Receivables 20
Banks 10

TOTAL 410 410

Questions:

a. How much is the book value of machinery

b. How much is the value of the current assets
c. If the EBIT for 2021 is 32, how much is the return on assets?
d. How much is the return on equity?
e. Why is the ROE greater than the ROA?

For 2022 the company has recorded the following operations

- They buy raw materials for 150

- The ending inventory of raw materials was 40
- The depreciation rate of machinery is 5%
- The equipment is depreciated in 6 years
- The sales were 340
- The labour expenses were 80 and the social security 30
- The energy expenses were 20
- The customers debt at the end of the year was 10
- The suppliers debt at the end of the year was 20
- The bank account at the end of the year had 30
- 10 pass from non-current liabilities to current liabilities
- Interests paid from loans were 10

Build the balance for 31/12/2022 and the income statement for 2022
Exercise 2.

An air travel company has the following annual accounts

Assets Equity and liabilities

Land, machinery, equipment 5291 Share capital 1301
Inventories 457 Reserves 200
Trade receivables 470 Profit for the year 362
Cash and cash equivalents 1222 Long term liabilities 3647
Short-term financing liabilities 327
Trade payables 1603

Income statement
Sales 3953
Materials -816
Salaries -568
Social Security -222
Energy and supplies -1589
Asset depreciations -291
0
Operating earnings 467
0
Financial expenses -9
0
Profit before tax 458
0
Income tax -96
Profit for the period 362

Questions

1. Classify costs by nature

2. Work out the balance composition (percentage vertical analysis)
3. Work out asset turnover, operation margin and ROA. Check their relationship
4. Work out the working capital. Explain its meaning.
5. Work out the liquidity ratio
6. Work out the debt ratio. Explain its meaning
7. If the cost of equity is 9.8% and the cost of debt is 4.3% work out the weighted
cost of capital
Exercise 3.

A company is studying to undertake a 120-million-Euro investment. The investment

lifespan is 4 years and it will be depreciated in the same time.

The following table shows the expected annual evolution of the EBIT.

Questions:

1. Work out the cashflows

2. Work out the NPV
3. Write the IRR equation
4. Work out the payback
5. Using the NPV, carry out a sensitivity analisis for the EBIT of year one
6. Work out the NPV if the investment will produce a final collection of 20 million
Euros in year 6

Use a corporate tax rate of 25% and a WACC of 11%

Y Investment EBIT
0 120
1 18
2 19
3 22
4 23